In my latest writing – ”Driving Revenue: Value, Value Propositions and Value-Based Pricing” (ALA Legal Management, March 2013) — I offer a basic outline for defining value, communicating value and pricing value. Part One, Defining Value, was posted on March 5. Part Two, Communicating Value, was posted on March 12. Here is Part Three: Pricing Value.
A final step in maximizing your firm’s value is to adopt value-based pricing. Value-based pricing (VBP) is a pricing strategy centered on (prospective) clients and focused on maximizing their value and the firm’s profit. This strategy ignores both cost-based and competition-based methodologies.
VBP is buyer-focused, so step one is to understand what the prospect/client values, often called value drivers. Value drives are as varied as ones’ goals; common examples include efficiency, effectiveness, expertise, price, trust. Because you are unlikely to have an understanding of your prospect’s/client’s value drivers, you must ask each client what s/he values. Typically, this is part of the relationship-building process. (For existing clients, a client feedback program is ideal.)
Next, VBP determines if any firm benefits match the client’s need. The desire to secure new work doesn’t mean any work actually exists or that you are the best fit. Therefore, the first goal is to understand the need(s) and to decide if you (or someone at your firm) has a matching solution(s). If so, the second goal is to negotiate for the work, and VBP provides a strong foundation.
Price negotiation – convincing a (prospective) client that their value is worth your fee – falls to your attorneys. They are the firm’s sales force. They are the ones who bring new matters to the firm by cultivating relationships with clients. They are the ones who will use the firm’s value propositions (see March 12) like arrows in a value quiver. They are the ones that determine whether the firm must concede value for a price discount.
Once you secure a new engagement (regardless of price), the VBP strategy helps frame the most cost-effective way to deliver those services. Here is where Legal Process Improvement and Legal Project Management come into play. By using these productivity tools, a firm is able to minimize its costs by leveraging its expertise and maximizing its efficiencies. A key component in delivering the services is monitoring progress. This ensures profitability, the ultimate goal of any engagement.
VBP can be summed up in four C’s: comprehend your client’s value drivers, communicate your firm’s value propositions, convince your clients your value propositions best match their value drivers, and control your costs.